President Donald Trump’s weekend threats to leave Canada out of the new North American Free Trade Agreement weighed on European and Asian stocks Monday.

Some investors were looking at the Nafta renegotiation as a bellwether for how far the U.S. is willing to take its trade spat with China.

Car makers in the Stoxx Europe 600 were the worst-performing sector in Europe and fell 1%, even as the broader index closed up 0.1%. Shares of Volkswagen, BMW and Daimler, which have car factories in the U.S. and Mexico, led the losses in Germany’s export-heavy DAX, which fell 0.1%.

“There is no political necessity to keep Canada in the new Nafta deal,” Mr. Trump tweeted Saturday.

Some analysts interpreted the comments as reinforcing Mr. Trump’s tough stance on trade and a sign that he could follow through with his threat to impose tariffs on a further $200 billion of imports from China as soon as a U.S. public consultation on the matter ends Thursday. They believe China is likely to retaliate.

Concerns about a global trade conflict have dented equity markets in Europe and Asia over the past few months, but also helped U.S. stocks to reach record highs, boosted by risk-averse money.

“U.S. markets are the place to be,” said Sean Clark, chief investment officer at Clark Capital Management. “I think the market is taking views on who the winners and losers could be, with the U.S. coming up on top,” he said, underscoring the strength of U.S. earnings data.

The stock exchange in Frankfurt. The main German index fell Monday.
Photo:
Reuters

China’s stock markets have had a dismal year, with the Shanghai Composite recently falling below its lowest closing level of 2016, when global stock markets trembled at the prospect of a large yuan devaluation.

The U.S. employment report for August, due Friday, will give further clues on the strength of the U.S. economy. The WSJ Dollar Index, which tracks the U.S. dollar against a basket of currencies, rose 0.1%.

Inflows into U.S. assets, however, have hurt emerging-market countries that are highly dependent on the dollar and foreign finance, chiefly Turkey and Argentina. Money managers are concerned about these issues spreading further.

On Monday, the Turkish lira was down 1.5% against the dollar, recovering from deeper falls earlier in day after the Turkish central bank said it would take action again in this month’s policy meeting, adding that officials “will take the necessary actions to support price stability.”

That came after fresh economic data showed that Turkish inflation in August rose to almost 18%, albeit lower than investors were expecting. The Argentine peso was broadly flat.

But many investors think it is unlikely that developing-market woes will grow large enough to affect U.S. growth through weaker demand for its exports.

“While the troubles in Turkey and Argentina are very real, we don’t necessarily have the same kind of systemic weakness we’ve had in the past,” said Brad McMillan, chief investment officer for Commonwealth Financial Network. “It’s not going to hit us.”

Elsewhere in Europe, a small rally in Italian government bonds narrowed the spread between Italian and German 10-year yields—a widely used measure of risk—after comments by Italy’s Deputy Prime Minister Matteo Salvini suggested the government wouldn’t seek to break European rules when passing this month’s budget.

Italian spreads are still hovering near their widest since 2013, which suggests that markets remain jittery about the budget creating a rift with European officials.

“Even though Italy has sold off, [and] is cheap relative to where it has been over recent years, the risk is that there could be even more volatility,” Chris Iggo, fixed-income chief investment officer at AXA Investment Managers, told clients late Friday.

Meanwhile, sterling fell 0.6% against the dollar, after the August survey of purchasing managers showed U.K. manufacturing output growth falling to its lowest in more than two years. A lower pound helped the shares of multinationals listed in the FTSE 100, which rose 1% on the day.